Best of Blog: Costs and Benefits

This series started as an attempt to enlighten those that advocate for increases in spending on infrastructure as to why people are generally not supportive of their efforts. It ultimately turned into a much greater technical analysis showing how our system of reporting costs and benefits for infrastructure projects is basically a fraud.

While we generally have an audience that is quite encouraging of our efforts, we got quite a few negative comments on this analysis. The reason: it struck a little close to home for many. Our approach nationally to analyzing costs and benefits (which is required for most federal, and many state, projects) is a relic of a different era. We're long past the day when it made sense to convert nominal social benefits (like saving a couple minutes on a commute) into a cash value and then contrast those "benefits" against real, financial investments as a measure of project value. Yet we cling to this system, largely because everyone vested in it -- from politicians, industry professionals, advocates and communities -- benefit from it in the near term. The first step to making change is shining a bright light on a system that is, at best, the misrepresentation of reality on a grand scale.

The series centers around an overpass construction project in Staples, MN, that was awarded a grant through the TIGER II program. We are going to run an excerpt from Part 4 of the series - the part where we looked at the social costs - but if you are interested in knowing more about how cost benefit analysis are done and why, here is the entire series.

Costs and Benefits, Part 4 (excerpt)

What this series is meant to do is to pull back the curtain for people who, when they hear that the benefits of a project exceed the costs by nine times, assume that the government is ultimately getting money back -- through new income tax, sales tax, property tax, etc... -- in an amount that significantly exceeds the cost of the project. There is a common assumption across the population that new infrastructure built in the American model we use today is an "investment" in our future prosperity, an investment that pays real, dollar returns.

Nothing could be further from reality.

If readers take one thing from this analysis it should be this: The way we spend money today on infrastructure responds to our preferred lifestyle choices, but provides no financial return.

We are spending enormous amounts of money on an American way of living that cannot be financially sustained. At this point in our development, nearly every project we do in this model costs us vastly more money than we will ever recoup in added tax revenues. Our economy is stifled and, despite our extraordinary efforts, we can't revive it, largely because we're choking on an infrastructure platform that sucks wealth instead of creates it. We've used private and public leverage and a variety of perverse incentives to create thousands of local Ponzi schemes, each providing the illusion of growth and prosperity. It is not real, and we as a people inherently know that.

Despite our efforts to deny reality by using bogus analyses that convert nominal social benefits into monumental, but fictitious, financial gains, the emperor has no clothes. But understand, the "emperor" is not the city of Staples. It is not local economic development professionals, engineers and planners or even politicians.

The emperor that has no clothes is us, the American people.

It is we who value that 45 seconds saved on a wider road over the money to invest in our schools. It is we who value the ability to live far from where we work more than we value having parks and quality public spaces. It is we who want to invest in a platform for easy growth in strip malls and big boxes rather than configure our communities for a slow, but far more resilient, economy. It is we who value our private space more than building communities we want to be part of.

And it is we who do not want to pay the enormous costs associated with our choices.

What is the social cost that we should weigh in a cost/benefit analysis on a project like the Staples overpass? Some would argue that the $16 million presents a lost opportunity. The money would be better spent educating our kids. Or finding a cure for cancer. Or providing for the nation's defense. We all have priorities we value.

But for me, the true social cost of our approach is how it has embedded in our minds the destructive notion that, as Americans, we can all get something for nothing.